Gonna state my opinion on risk that the "vol selling products" blow up and cause a volmaggedon outcome. Tl;dr I don't thinks so.

As far as I can tell the gross majority of the AUM in ETN's are hedging products. JHEQX is a long equity short call long out spread structure QYLD is a buy write product on QQQ. Those are the two biggest. Both of them sell calls and so are "short vol". What if vol goes up? The call price goes up all else be equal and the structure has a drawdown. Of course all else isn't equal

Alpha and Beta Investing 201. The investment strategy I use is to allocate risk to both Alpha and Beta. For simplicity I will use DS Alpha and DS Beta for this thread though I personally use DS smart beta and less or not ETF's. The DS AlphaBeta is purple To construct this portfolio I take $100 of cash and buy $100 of DS Beta. Then as you know I buy or sell options and options spreads such that at any time my worst case loss (and hence my broker margin) is $10 maximum. That is easy to do in any form of margin account

Catalysts 101

I am often asked what catalyst will cause the market to move in my favor. Usually it's when the market is going against me. I answer that I don't know. Imho catalysts are unpredictable ex ante and often misattributed ex post.
I'll explain So what is catalyst. I think it is a general term that is better defined as an "event" but I'll use the term catalyst.

I'll also posit that a catalyst can be a known or unknown future event.

Lets for the moment discard unknown future events and deal with known events.

The logical path of AI a musing. My expectation of the future of humanity and how it interacts with machines takes two paths. This is not a new path. These are the paths that humanity has been on for centuries. Without being too literal about the two paths I will name them 1. Information
2. Machine enhanced production.

Let's start with information. Humans have been creating and consuming "content" since languages were created. One person would create "content" and tell another who would consume content. Art music, stories, religion

What does price mean to me. 101

1. It is reality where markets clear.
2. It prices in all possible future outcomes
3. It's momentum can provide alpha
4. Its changes determine your p/l 1. It is reality where markets clear. Dont anyone ever tell you the price is wrong. The price is the price and you cant yell at it.

2. Price is set considering all market participants expectations for all scenarios. So price allows you to understand what's priced in.

What's priced into markets 102
Mean expectations, CME Fed Tracker binomial approach, and option implied distributions.

I've noticed the dialogue in my feed lead by some great follows have introduced concepts of what priced in that are worth review. I'll try to keep it simple This is a followup to two other threads

https://twitter.com/dampedspring/status/1549376145724002306

Corporate share repurchases and blackout windows 101

These windows are not a thing. The beginning of the blackout and the end of the blackout are not relevant to the gross majority of share repurchasers.

Why? There are three relevant legal issues to deal with. 1. 10b-18 Applies to all share repurchase activities and following the 4 safe harbor conditions eliminates the liability of a corporation from manipulation claims.

2. Insider trading concerns create the so called blackout window. It is two weeks before quarter end and

Today the BOE Warned about the Treasury Basis Trade. What is it and does it matter 101?

Hedge funds are very short ten year note futures (and most every point on the curve). Are they getting Rekt with this rally? Nope. What's going on? In just the ten year note futures the notional short is 150BN.

The trade they have is called the futures cash basis trade. They are long a an actual physical treasury bond with similar duration as the futures so are taking no interest rate risk or curve risk. How do I know?

Been talking about the QRA/QT relationship since 3/14/22. Anyone else been doing that? Each QRA, except during the SVB tempest in a tea cup, I wrote a DSR. I didn't predict what Janet would do very well but was super successful in trading when I read what she did do.🧵 of DSR's Before QT even got started I predicted what it would look like and introduced the concept that the Fed had handed the ball to Janet Yell to Implement monetary policy by choosing bills or bonds.

dampedspring.com/wp-content/upl…

Has anyone done a balanced outlook of the short term macroeconomic path implications of AI? I would prefer it stay away from the ultimate end point & things like the machines awaken and kill us all or take all the jobs and we all live on UBI. Just the next ten years. My notes. Seems like the path in the near term (0-5 years) is creating shifts

1. in the demand for labor, and commodities
2. in the
supply of goods and services
3. in investment and sources of money and credit
4. in risk

What happens when the RRP goes down substantially like it has been
101

There are two important paths and those paths are essential to understand what could happen to long term assets.

Let's start with what is actually happening and then I'll deal with the one that matters I'll also ignore QT for now. Which makes things worse for assets in both paths.

When the government issued bills to finance spending two things happen

1. People get spending in their bank accounts
2. Bills get sold to investors

That is literally all that happens let's break

Some thoughts on loneliness in views today.

Let's start with what is my view. I am short a portfolio of assets including for simplicity SPY, TLT, TIP, GLD and GSG.

My view is that cross asset portfolio will underperform cash in the next 3 months.

It's a Forest view What is that view.

1. The last 18 days of easing will offset the trends in the economy and growth and inflation will stall at too high levels
2. The Fed has no incentive to cut rapidly without stress in the asset markets
3. Individual asset markets are priced for the best

Measuring investment performance 101

I have some strong opinions on this topic. It is also one of the most studied topics in finance. I'll give it a go.

I'll start with my strongest view. It is almost impossible to determine if an investor has an ability to beat the market Beating the market is extremely difficult and though a very few may be able to do it almost all investors are unable to do it

Track records are useless as predictors of future returns in most examples

Of 1000 portfolio managers timing markets 172 managers will beat the market

What are tight financial conditions 101?

This is a question with no clear answer. I believe that any correct answer requires a multifaceted view.

I'll mention a few common ones and my thoughts but not be anything like exhaustive.

What is clear is what it means to be tight Tight financial conditions mean that the availability of money and credit makes it difficult/expensive for someone who needs spendable cash to consume, invest in the real economy, pay back debt, or buy financial assets. In other words people compare the utility of cash vs these

The drop in the RRP is partly Runoff of 60BN a month and partly a shift to reserves. The shift to reserves is supposed to be stimulative to the asset market. Lets see what is happening to assets. Firstly its important to know that a bank reserve is an asset of a commercial .. bank. As reserves go up Assets go up. Also the RRP means the MMF down has a deposit. or the MMF has a bill and the bill issuance creates spending and a deposit in the banking system. So far so good?

What is a "normal" TGA? 101 and why asking questions is a superpower

@HegedusAero a self described amateur wanted to know this answer and did his own work and asked a believable party questions. The process was messy and I admittedly did not understand the line of questioning. But he wouldn't put the questions down and kept probing. Finally he showed me enough of his work that I saw his thinking and connected the dots. This is why Bridgewater hires curious botanists and avoids hiring experienced MBA's and Finance PHD's. It's the curiosity

Structure Products - a story

When I ran global equity derivatives trading at Salomon Smith Barney I was responsible for all the structured product creation trading and distribution that had equity or hybrid equity/fixed income exposures. This is a story about Japan.
During The late 90's Salomon had been bought by Smith Barney, done a joint venture with Nikko Securities, merged with Citibank, acquired an Australian bank, acquired a British bank, acquired Banamex. Each piece of these mergers resulted in a much broader and deeper distribution network

QT Runoff 101
In the chart below the Blue column is the amount of Bonds and Notes maturing on the Fed's balance sheet. Each month when the blue line is above the 60BN which is the QT cap the Fed proportionally buys bonds across the curve using "add-ons" August is a huge month for maturities so the add ons are large. In order for the Fed to maintain the minimum holdings of all bonds and notes they passively add on proportionately to the Treasuries issuance preferences. Just in case fed ever wants to sell the bonds holding a concentrated position in

The huge "hedge fund short" 101
Many have published a chart that say "hedge funds have the largest speculative short futures position in history". The data is accurate. It also needs interpretation.
Here's my chart it's a few weeks old but illustrates my point The hedge fund short is someone else's long. That long is institutional investors. It's very big. But that is not the important story. This unlike the ES charts which looked the same and were a choose your fighter Long Only Simps vs Hedge funds (which I got completely wrong)

Comparing JGB 10 year yield to UST 10 year yield 101

This is an important and somewhat complex topic. Given the BOJ move last night it seems worth discussing. Currently the on the run JGB 10 year is yielding 56bp and the US 10 year is yield 4%. Wow. It seems obvious which One is better. The one with the higher yield. But that is completely wrong. Let's start with a local investor in Japan. The fictional Mrs Watanabe. She currently can borrow money overnight from her Japanese margin account at -10bp and buy a JGB with that money with a 56bp

Rebalance flows 101

We often hear about portfolio rebalance flows as moving markets. On occasion these flows are substantial and do impact markets. This thread will examine some of the various sorts of portfolio rebalances that regularly occur and ones that are episodic The important takeaways for this topic and any other topics about flow is that
1. Portfolio rebalancing flows are always happening
2. Every seller has a buyer and every buyer has a seller
3. Some rebalances are mechanically tethered to a date and time on a calendar
4. Sharks know